<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
-----------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 0-26306
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IMNET SYSTEMS, INC.
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(Exact name of registrant as specified in its charter)
Delaware 39-1730068
- ------------------------------- ------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
8601 Dunwoody Place, Atlanta, Georgia 30350
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(Address of principal executive offices) (Zip code)
(770) 998-2200
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(Registrant's telephone number, including area code)
Not Applicable
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(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant: (1) has filed all report
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
Common Stock, as of the latest practicable date.
There were 9,601,062 shares of Common Stock outstanding as of November 11,
1996.
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IMNET SYSTEMS, INC.
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1996
INDEX
PART I - FINANCIAL INFORMATION
<TABLE>
<CAPTION>
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED) PAGE
----
<S> <C>
Consolidated Balance Sheets - September 30, 1996 and June 30, 1996 3
Consolidated Statements of Operations - Three Months Ended
September 30, 1996 and 1995 4
Consolidated Statements of Cash Flows - Three Months Ended
September 30, 1996 and 1995 5
Notes to Interim Consolidated Financial Statements 6-7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 8-14
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 15
</TABLE>
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
IMNET SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
1996 1996
------------- ------------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents....................... $ 6,797,731 $16,894,711
Marketable securities........................... 27,858,799 21,541,760
Trade accounts receivable, net.................. 21,685,226 15,360,291
Note receivable from related party.............. 409,627 2,910,876
Inventories..................................... 2,972,179 2,079,574
Prepaid expenses and other current assets....... 1,358,627 712,204
----------- -----------
Total current assets......................... 61,082,189 59,499,416
Noncurrent trade accounts receivable.............. 848,540 1,085,927
Notes receivable from officer..................... 105,000 105,000
Property and equipment, net....................... 3,496,638 3,329,331
Computer software development costs, net.......... 1,640,021 1,212,875
Acquired technology, net.......................... 780,413 959,755
Goodwill and other intangibles, net............... 3,238,770 3,343,774
----------- -----------
$71,191,571 $69,536,078
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................ $ 2,757,331 $ 1,255,134
Accrued expenses................................ 6,725,093 6,653,556
Deferred revenue................................ 742,713 804,357
----------- -----------
Total current liabilities.................... 10,225,137 8,713,047
Stockholders' equity:
Common stock, $.01 par value. Authorized
25,000,000 shares; 9,638,699 shares issued and
9,601,062 shares outstanding at
September 30, 1996 and 9,627,071 shares issued
and 9,589,434 shares outstanding at June 30,
1996........................................... 96,387 96,271
Additional paid-in capital....................... 80,892,893 80,795,841
Treasury stock, 37,637 shares, at cost........... (148,417) (148,417)
Accumulated deficit.............................. (19,874,429) (19,920,664)
----------- -----------
Total stockholders' equity................... 60,966,434 60,823,031
----------- -----------
$71,191,571 $69,536,078
=========== ===========
</TABLE>
See accompanying notes to unaudited interim consolidated financial statements.
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IMNET SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
1996 1995
---------- ----------
<S> <C> <C>
Revenues:
Systems sales................................ $7,694,820 $3,767,674
Maintenance and professional services........ 1,964,454 666,603
---------- ----------
Total revenues............................. 9,659,274 4,434,277
---------- ----------
Operating expenses:
Cost of systems sales........................ 2,093,491 631,035
Cost of maintenance and professional services 1,476,539 481,363
Sales and marketing.......................... 2,648,795 2,058,045
Research and development..................... 1,149,873 620,780
General and administrative................... 1,387,005 804,669
Non-recurring charges........................ 749,545 --
---------- ----------
Total operating expenses................... 9,505,248 4,595,892
---------- ----------
Operating income (loss).................... 154,026 (161,615)
Interest and other income, net................ 492,209 417,764
---------- ----------
Income before income taxes................. 646,235 256,149
Income taxes.................................. -- --
---------- ----------
Net income................................. $ 646,235 $ 256,149
========== ==========
Net income per common share.................... $ 0.07 $ 0.03
========== ==========
Weighted average outstanding common shares
and common share equivalents ............... 9,998,714 8,068,828
========== ==========
</TABLE>
See accompanying notes to unaudited interim consolidated financial statements.
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IMNET SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
1996 1995
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................................. $ 646,235 $ 256,149
Adjustments to reconcile net income to net cash used
in operating activities:
Depreciation and amortization of property and equipment 244,099 144,175
Amortization of computer software development costs,
acquired technology, and goodwill and other
intangibles........................................... 377,283 174,243
Provision for doubtful accounts receivable.............. 57,235 72,095
Loss on disposal of property and equipment.............. 16,738 542
(Increase) decrease in:
Trade accounts receivable............................... (6,182,783) (2,582,050)
Note receivable from related party...................... 2,501,249 --
Inventories............................................. (845,721) (443,396)
Prepaid expenses and other current assets............... (646,423) (500,330)
Increase (decrease) in:
Accounts payable........................................ 1,502,197 (423,899)
Accrued expenses........................................ 109,537 169,307
Deferred revenue........................................ (61,644) 325,706
----------- -----------
Net cash used in operating activities................. (2,281,998) (2,807,458)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of marketable securities......................... (7,317,039) --
Maturities of marketable securities........................ 1,000,000 --
Additions to property and equipment........................ (475,028) (698,640)
Additions to computer software development costs........... (473,183) (207,346)
Additions to intangible assets............................. (46,900) --
Issuance of notes receivable from officer.................. -- (150,000)
----------- -----------
Net cash used in investing activities................. (7,312,150) (1,055,986)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of common stock......................... -- 38,181,773
Proceeds from exercise of stock options and warrants....... 97,168 255,608
Dividends paid............................................. (600,000) --
----------- -----------
Net cash provided by (used in) financing activities... (502,832) 38,437,381
----------- -----------
Net (decrease) increase in cash and cash equivalents.. (10,096,980) 34,573,937
Cash and cash equivalents at beginning of period............. 16,894,711 1,856,970
----------- -----------
Cash and cash equivalents at end of period................... $ 6,797,731 $36,430,907
=========== ===========
</TABLE>
See accompanying notes to unaudited interim consolidated financial statements.
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IMNET SYSTEMS, INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 1996
(1) BASIS OF PRESENTATION
The accompanying unaudited interim consolidated financial statements
represent the accounts of IMNET Systems, Inc. and its wholly owned subsidiaries
(the "Company" or "IMNET"). The consolidated financial statements have been
prepared in accordance with instructions to Form 10-Q and, therefore, do not
include all information and footnotes necessary for fair presentation of
financial position, results of operations, and cash flows in conformity with
generally accepted accounting principles. All adjustments, consisting of
normal recurring accruals, which, in the opinion of management, are necessary
to a fair statement of financial position and results of operations for the
periods covered by this report have been included. The accompanying unaudited
interim consolidated financial statements should be read in conjunction with
the Company's financial statements and related notes appearing in the Company's
Annual Report on Form 10-K for the year ended June 30, 1996.
On September 30, 1996, the Company issued 429,292 shares of its Common
Stock for all of the outstanding common stock of Hunter International, Inc.
("Hunter"). The merger has been accounted for as a pooling of interests and,
as a result, the Company's financial statements for all periods prior to the
merger have been restated to include the financial position and results of
Hunter.
In addition, certain reclassifications have been made to prior
consolidated financial statements to conform with presentations adopted as of
and for the period ended September 30, 1996.
(2) INVENTORIES
Inventories are summarized as follows:
<TABLE>
<CAPTION>
September 30, June 30,
1996 1996
------------ -----------
<S> <C> <C>
Finished goods.............. $1,761,885 $ 714,255
Work in progress............ 182,183 380,315
Raw materials............... 1,028,111 985,004
---------- ----------
$2,972,179 $2,079,574
========== ==========
</TABLE>
(3) ACQUISITION
As described in Note 1 above, IMNET acquired Hunter through a merger
effective September 30, 1996. Hunter was a privately held company which
provides electronic report management and distribution software solutions to the
healthcare and other industries. The Company and Hunter incurred $749,545 in
non-recurring charges related to acquisition costs associated with the
acquisition. No elimination of intercompany transactions or other adjustments
were required in combining the results of IMNET and Hunter. The $600,000 in
dividends paid disclosed in the consolidated statement of cash flows for the
three months ended September 30, 1996 were normal stockholder distributions paid
by Hunter prior to the acquisition. IMNET has not paid dividends on its Common
Stock. Combined and separate results of IMNET and Hunter for the three months
ended September 30, 1995 were as follows:
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<TABLE>
<CAPTION>
IMNET Hunter Combined
---------- -------- ----------
<S> <C> <C> <C>
Revenues.................. $3,851,372 $582,905 $4,434,277
Net income................ $ 109,640 $146,509 $ 256,149
</TABLE>
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
IMNET develops, markets, installs and services electronic information and
document management systems to meet the needs of the healthcare industry and
other document-intensive businesses. IMNET's products include proprietary and
third-party software and hardware components which are integrated to create
electronic information and document management systems. IMNET supports its
customers through a broad range of customization, systems integration,
installation, training and maintenance services.
The Company's revenues are derived primarily from the sale and support of
components of the IMNET Electronic Information Warehouse: the IMNET Image
Engine, the IMNET Workflow Engine, the IMNET Electronic Patient Record System,
IMNET MedVision and the IMNET MegaSAR Microfilm Jukebox. Revenues from systems
sales consist of IMNET and third-party hardware and software license fees.
Sources of maintenance and professional services revenues include services for
installation, project management, custom programming and training, as well as
maintenance and service contracts for software and certain hardware support.
IMNET systems are sold directly to end users as well as through third-party
distribution partners. Although the Company's relationships with its healthcare
information systems ("HCIS") distribution partners are relatively new, the
Company expects that sales to and through its HCIS distribution partners and
other distribution partners will increase.
Revenues from sales to the healthcare industry, expressed as a percentage
of total revenues, increased to 92% in the three-month period ended September
30, 1996 from 82% in the corresponding period in fiscal 1996. The Company
anticipates that sales to the healthcare industry will continue to increase as
a percentage of total annual revenues, although such sales may fluctuate from
quarter to quarter. Revenues from sales outside of North America were less
than 3% of total revenues in the three-month periods ended September 30, 1996
and 1995.
The Company recognizes revenues derived from systems sales to end-user
customers, including 90% of software license fees and 100% of hardware
revenues, upon the factory acceptance by the customer and delivery of the
configured system. The Company defers recognition of 10% of the software
license fees until completion of certain insignificant vendor obligations
primarily related to the site acceptance by the customer. Revenues derived
from systems sales to distribution partners are recognized upon delivery if the
contract is between the Company and the distribution partner, the payment terms
are fixed with all amounts due within twelve months, there are no other
significant obligations to be performed by the Company and provided that the
distribution partner meets the Company's criteria with respect to sell-through
and credit risk. Revenues derived from the systems sales to distribution
partners in which the contract is between the Company and the customer (the end
user) of the distribution partner are recognized in accordance with the
Company's revenue recognition policy for end-user customers described above.
Revenue recognition for systems sales to end users that have been delivered
and accepted by the customer with contractual payment terms that extend beyond
one year is determined by the Company based upon the Company's historical
experience with the customer, the customer's credit worthiness and an assessment
of the enforceability of the contract. All revenues recognized related to
contracts with payments due in more than one year are discounted at the
Company's incremental borrowing rate.
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Revenues from professional services, which may include preparation of
functional specifications, customization and programming, systems integration
and training, among others, are recognized as the services are performed.
Revenues derived from maintenance and support contracts are recognized ratably
over the terms of the related contracts.
Deferred revenues represent either billings rendered to or payments
received from customers for systems prior to factory acceptance and delivery to
the customer and maintenance and support services billed in advance.
At September 30, 1996, the Company had approximately $27.7 million of
signed sales contracts for systems and services which had not yet been
delivered. The amount of signed sales contracts for systems and services which
have not been delivered includes contracts for software license fees, hardware
sales and services that may include cancellation provisions that do not pertain
to IMNET's performance and contracts that are expected to result in revenues
over periods of as much as five years. Over time, the proportion of such
signed sales contracts represented by long-term contracts is expected to
increase. Any significant or ongoing failure to achieve signed contracts and
subsequent customer acceptance after expending time, effort and funds could
have a material adverse effect on the Company's business. Because the Company
adjusts the timing of an installation to accommodate customers' needs, and
because a typical installation requires two to 12 months to complete, the
Company is unable to predict accurately the number of signed sales contracts
it expects to fill and consequently the amount of revenues it expects to
achieve in any particular period.
The Company capitalizes a portion of its computer software development
costs for internally developed software. These costs relate primarily to the
development of new products and enhancements to existing products to
accommodate new markets or platforms using existing technologies and
programming methods. Amortization of computer software development costs is
provided by the Company on individual products or enhancements and begins when
the product or enhancement is available for use by customers. Amortization is
recorded using the greater of: (1) the amount computed using the ratio of
current product revenue to the total of current and anticipated product revenue
or (2) the amount determined using the straight-line method over the estimated
useful life of the software, not to exceed three years. Amortization of
computer software development costs is included in cost of systems sales in the
accompanying consolidated statements of operations
RECENT ACQUISITION
On September 30, 1996, the Company completed the acquisition of Hunter
International, Inc. ("Hunter") by issuing 429,292 shares of IMNET Common Stock
for all of the outstanding common stock of Hunter. The merger has been
accounted for as a pooling of interests and, as a result, the Company's
financial statements for all periods prior to the merger have been restated to
include the financial position and results of Hunter. Based in Wilsonville,
Oregon, Hunter was a privately held company which provides electronic report
management and distribution software solutions to the healthcare and other
industries.
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RESULTS OF OPERATIONS
The following table sets forth certain operating data as a percentage of
total revenues for each fiscal period indicated:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
1996 1995
-------- --------
<S> <C> <C>
Revenues:
Systems sales................................. 79.7% 85.0%
Maintenance and professional services......... 20.3 15.0
----- -----
Total revenues.............................. 100.0 100.0
----- -----
Operating expenses:
Cost of systems sales......................... 21.7 14.2
Cost of maintenance and professional services. 15.3 10.9
Sales and marketing........................... 27.3 46.4
Research and development...................... 11.9 14.0
General and administrative.................... 14.4 18.1
Non-recurring charges......................... 7.8 --
----- -----
Total operating expenses.................... 98.4 103.6
----- -----
Operating income (loss)..................... 1.6 (3.6)
Interest and other income, net.................. 5.1 9.4
----- -----
Income before income taxes.................... 6.7 5.8
Income taxes.................................... -- --
----- -----
Net income.................................... 6.7% 5.8%
===== =====
</TABLE>
Comparison of the Three Months Ended September 30, 1996 and 1995.
Revenues. The Company's total revenues were $9.7 million for the first
quarter of fiscal 1997 compared to revenues of $4.4 million for the first
quarter of fiscal 1996, an increase of $5.2 million, or 118%. The Company's
total revenues derived from sales to North American healthcare customers were
$8.9 million for the first quarter of fiscal 1997 compared to $3.6 million for
the corresponding period in fiscal 1996, an increase of $5.3 million, or 147%.
This increase was primarily due to a significantly larger customer base as well
as $4.6 million of revenue resulting from the Company's alliances with its
distribution partners. Revenues from sales to North American general business
customers were $495,000 in the first quarter of fiscal 1997 compared to
$733,000 in the first quarter of fiscal 1996, a decrease of $238,000, or 32%.
Revenues from sales to international customers were $240,000 in the first
quarter of fiscal 1997 compared to $65,000 in the corresponding quarter of
fiscal 1996, an increase of $175,000. Revenues from maintenance and
professional services were $2.0 million in the first quarter of fiscal 1997
compared to $667,000 in the first quarter of fiscal 1996, an increase of $1.3
million, or 195%. The increase in revenues from these services is primarily
attributable to an increase in healthcare professional services and additional
maintenance contracts.
Cost of Revenues. The cost of systems sales in the first quarter of
fiscal 1997 was $2.1 million compared to $631,000 in the corresponding period
of fiscal 1996. As a percentage of total revenues, the cost of systems sales
increased to 22% in the first quarter of fiscal 1997 from 14% in the
corresponding period of fiscal 1996 due to a higher hardware component in the
systems sales revenue mix and a higher maintenance and services component
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in the total revenues mix. The cost of maintenance and professional services
as a percentage of maintenance and professional service revenues in the
corresponding periods was relatively consistent.
Sales and Marketing. Sales and marketing expenses consist primarily of
sales commissions and related costs and expenses allocated to the Company's
sales and marketing personnel. Sales and marketing expenses increased to $2.6
million in the first quarter of fiscal 1997 from $2.1 million in the first
quarter of fiscal 1996, an increase of 29%. The increase is primarily due to
higher sales commissions from increased systems sales and higher sales salary
expense associated with increases in sales personnel. Sales and marketing
expenses as a percentage of total revenues decreased to 27% in the first
quarter of fiscal 1997 compared to 46% in the first quarter of fiscal 1996.
Research and Development. Research and development expenditures consist
primarily of personnel costs of research and development staff and the
facilities, computing, benefits and other administrative costs allocated to
such personnel. Research and development expenses increased to $1.1 million in
the first quarter of fiscal 1997 from $621,000 in the first quarter of fiscal
1996, an increase of $529,000, or 85%. The increase was primarily attributable
to an increase in the number of research and development personnel and
associated costs, partially offset by the capitalization of $473,000 in
software development costs in the first quarter of fiscal 1997 related to new
products expected to be released over the next nine months. These capitalized
costs represented 30% of the Company's total research and development
expenditures during this period. As a percentage of total revenues, research
and development expenses decreased to 12% from 14% in the first quarter of
fiscal 1997 as compared to the corresponding quarter of fiscal 1996.
General and Administrative. General and administrative expenses include
the costs of corporate operations, finance and accounting, human resources and
other general operations of the Company. General and administrative expenses
increased to $1.4 million in the first quarter of fiscal 1997 compared to
$805,000 in the first quarter of fiscal 1996, an increase of 72%. This
increase is partially attributable to increased staffing and related costs
necessary to support the Company's growth. General and administrative expenses
as a percentage of total revenues decreased to 14% in the first quarter of
fiscal 1997 from 18% in the first quarter of fiscal 1996.
Non-recurring Charges. The Company and Hunter incurred $750,000, or $0.07
per share, in non-recurring charges related to acquisition costs associated with
the acquisition of Hunter described above.
Provision for Income Taxes. The Company has a total net operating loss
carryforward of approximately $9.4 million as of June 30, 1996 to offset
taxable income in fiscal year 1997. As a result, the Company has not provided
any income tax expense for fiscal 1997.
Net Income. The Company's net income for the first quarter of fiscal
1997 was $646,000 or $0.07 per share, compared to net income of $256,000, or
$0.03 per share, in the first quarter of fiscal 1996. Exclusive of the
non-recurring charge related to the Company's acquisition of Hunter, the
Company would have recorded net income of $1.4 million, or $0.14 per share, for
the first quarter of fiscal 1997. The improvement in the Company's results
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was primarily due to the significant growth in revenues, partially offset by
increases in operating expenses necessary to support the Company's continuing
growth.
LIQUIDITY AND CAPITAL RESOURCES
Since its inception in 1992, the Company has funded its operations,
working capital needs and capital expenditures primarily from sales of equity
securities. In July 1995, the Company received approximately $37.5 million net
of underwriter's discounts and offering costs from its initial public offering.
In February 1996, the Company received an additional $18.5 million net of
underwriter's discounts and offering costs from a subsequent offering of its
Common Stock.
Cash and cash equivalents and marketable securities at September 30, 1996
were $34.7 million, a decrease of $3.8 million from June 30, 1996. During the
three months ended September 30, 1996, the Company used cash of $2.3 million
for operating activities, as compared to cash used in operating activities of
$2.8 million in the first quarter of fiscal 1996. The $600,000 in dividends
paid disclosed in the consolidated statements of cash flows for the three
months ended September 30, 1996 were normal stockholder distributions paid by
Hunter prior to the acquisition. IMNET has not paid dividends on its Common
Stock.
The Company plans to continue to increase its professional staff during
fiscal 1997 and the foreseeable future to meet anticipated sales volume and to
support research and development efforts. The Company expects that its
requirements for office facilities and office equipment will grow as staffing
requirements dictate. The Company currently leases 54,000 square feet of
office space. To accommodate continuing growth, the Company signed an
operating lease, effective January 1997, to increase its headquarters space.
The Company expects to move to the new facility in January 1997 and will incur
increased rental expense. Management expects to sublease its existing facility
at a rate commensurate with the existing lease commitment and has engaged a
real estate agent to assist in the sublease. The Company has budgeted capital
expenditures of approximately $1.9 million in fiscal 1997 for the purchase of
computer equipment for existing and new employees, furniture and fixtures, and
equipment associated with the new office facility, new training equipment, and
new equipment for customer demonstrations.
Recently counsel to a competitor contacted the Company, asserting that the
Company's Electronic Information Warehouse infringes a patent owned by it
relating to systems which incorporate database management systems and support
bulk storage systems, and that other patents may also be infringed. The
Company has referred this matter to its patent counsel for review. Based upon
initial discussions with the competitor, the Company believes that this claim
will not have a material adverse impact upon the Company's consolidated
financial position or consolidated results of operations; however, there can be
no assurance that an agreement will be reached. In the event that this claim
should proceed to litigation, adverse determinations of the claim or of other
such claims could subject the Company to significant liabilities to third
parties and could require the Company to seek licenses from third parties,
which may not be available on commercially reasonable terms. As a result, an
adverse determination in any such litigation could have a material adverse
effect upon the Company's consolidated financial position and consolidated
results of operations.
The Company has experienced significant quarterly fluctuations in
operating results which may continue in future periods. The Company's revenues
from systems sales have varied significantly from quarter to quarter as a
result of the volume and timing of systems sales and customer acceptance and
delivery. Professional services revenues have also fluctuated from quarter to
quarter as a result of the timing of installation of software and hardware,
project management and customized programming. Revenues from maintenance
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services have not fluctuated significantly from quarter to quarter and have
been increasing as the number of the Company's customers increases. Since a
significant percentage of the Company's expenses are fixed, quarterly operating
results will vary with the timing and fluctuation of total revenues.
Furthermore, margins are affected by the mix of products sold.
The Company's accounts receivable days sales outstanding ("DSO") have
continued to increase. Management believes that its willingness to grant
extended terms, on a negotiated, case by case basis, provides the customer or
distributor with additional incentives to commit to large purchases, because
such terms (i) demonstrate that the Company is comfortable with providing the
customer or distributor the leverage inherent in deferred payments (thereby
demonstrating its confidence in its product), and (ii) permit the customer or
distributor (and the Company) to commit to a large order, while the payment
stream is tailored to a longer period of time (thereby providing the customer
or distributor with a means to finance the project over one or more internal
cash budgeting cycles). Therefore, management believes the accounts receivable
DSO trend will continue in fiscal 1997, due to the extended terms selling
strategy. However, the failure by one or more customers or distributors to pay
the Company significant accounts receivable balances outstanding as they become
due would have a material adverse effect on the Company's consolidated
financial position and consolidated results of operations.
The Company believes that its cash and cash equivalents and marketable
securities, along with revenue from operations, will be sufficient to finance
expected cash requirements for operating activities and anticipated growth for
at least the next 12 months. The Company's ability to meet its cash
obligations on a long-term basis will depend on its ability to continue to
achieve profitable operations and on consistent and timely collection of its
accounts receivable. To date, inflation has not had a material impact on the
Company's revenues or expenses.
The Company will require significant funds to implement its business
strategies. Unless its revenues increase significantly, the Company may
experience losses due to the following factors: (i) the Company's operating
expenses are budgeted on anticipated revenues; (ii) the Company incurs
significant expenses in connection with research and development, and more
recently, the development of its direct and indirect selling and marketing
efforts; and (iii) a high percentage of the Company's expenses are fixed. As a
result, there can be no assurance that the Company will be profitable in the
future or that available funds, together with any funds provided by operations,
will be sufficient to fund the Company's ongoing operations. If the Company
has insufficient funds, there can be no assurance that additional financing can
be obtained on acceptable terms, if at all. The absence of such financing
would have a material adverse effect on the Company's business, including a
possible reduction or cessation of operations.
In addition to the information in this filing, certain risk factors, among
others, should be considered carefully in evaluating the Company and its
business. These risk factors include the following: (i) limited operating
history; lack of profitable operations; (ii) variability in quarterly operating
results; volatility of stock price; (iii) customer concentration; (iv) product
acceptance and market development; dependence on distribution partners; (v)
long sales and delivery cycle; dependence on future system sales; (vi) ability
to manage growth; (vii) risks associated with acquisitions; (viii) risks
associated with new distribution partners; (ix) technological changes;
competition; (x) uncertainty in healthcare industry; government healthcare
reform proposals; (xi) dependence on key personnel; (xii) dependence on
proprietary rights and patents; (xiii) product liability; (xiv) foreign
Page 13
<PAGE> 14
operations; (xv) control by officers and directors; (xvi) shares eligible for
future sale; and (xvii) certain anti-takeover considerations.
Note regarding Private Securities Litigation Reform Act: Statements
made by IMNET which are not historical facts, including projections, statements
of plans, objectives, expectations, or future economic performance, are forward
looking statements that involve risks and uncertainties and are subject to the
safe harbor created by the Private Securities Litigation Reform Act of 1995.
IMNET's future financial performance could differ significantly from that set
forth herein, and from the expectations of management. Important factors that
could cause IMNET's financial performance to differ materially from past
results and from those expressed in any forward looking statements include,
without limitation, the factors discussed in this "Management's Discussion and
Analysis of Financial Condition and Results of Operations". For further
information on these and other risk factors, please refer to IMNET's Form 10-K
for the year ended June 30, 1996, including the "Business-Risk Factors" section
thereof.
Page 14
<PAGE> 15
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS:
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION OF EXHIBIT PAGE NUMBER
------- ---------------------- -----------
<S> <C> <C>
2.1* Agreement and Plan of Merger dated as of September 30,
1996 among the Registrant, Hunter International, Inc.,
Larry C. Hunter and Paul Sherman.
3.2.2** Amended and Restated Certificate of Incorporation of Registrant.
3.3.1*** Amended and Restated ByLaws dated September 10, 1996.
11 Computation of Per Share Earnings - Three Months Ended 17
September 30, 1996 and 1995.
27 Financial Data Schedule (for SEC use only)
- ----------------
* Incorporated by reference to the Exhibit with the same number
filed with the Company's Form 8-K dated September 30, 1996, filed on
October 15, 1996. The Company has applied for confidential
treatment of portions of this Agreement. Accordingly, portions
thereof have been omitted and filed separately with the Securities
and Exchange Commission. In addition, in accordance with Item
601(b)(2) of Regulation S-K, the schedules have been omitted and a
list briefly describing the schedules is at the end of the Exhibit.
The Registrant will furnish supplementally a copy of any omitted
schedule to the Commission upon request.
** Incorporated by reference to the Exhibit with the same number in the
Registrant's Registration Statement on Form S-1 (No. 33-92130).
*** Incorporated by reference to the same Exhibit number in the
Registrant's Annual Report on Form 10-K for the year ended June 30,
1996.
(B) REPORTS ON FORM 8-K:
No reports on Form 8-K were filed during the quarter for
which this report is filed.
</TABLE>
Page 15
<PAGE> 16
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has caused this quarterly report on Form 10-Q to be signed on its
behalf by the undersigned thereunto duly authorized.
IMNET SYSTEMS, INC.
Dated: November 14, 1996 By:/s/ Raymond L. Brown
--------------------------------------------
Raymond L. Brown
Senior Vice President and
Chief Financial Officer
(Principal Financial and Accounting
Officer)
Page 16
<PAGE> 1
IMNET SYSTEMS, INC. EXHIBIT 11
COMPUTATION OF PER SHARE EARNINGS
The following computations set forth the calculations of primary and fully
diluted earnings per share for the three-month periods ended September 30, 1996
and 1995.
<TABLE>
<CAPTION>
1996 1995
----------------------- -----------------------
FULLY FULLY
PRIMARY DILUTED PRIMARY DILUTED
EARNINGS EARNINGS EARNINGS EARNINGS
PER SHARE PER SHARE PER SHARE PER SHARE
----------------------- -----------------------
<S> <C> <C> <C> <C>
Net income................................. $ 646,235 $ 646,235 $ 256,149 $ 256,149
========== ========== ========== ==========
Weighted average outstanding common
shares................................... 9,591,748 9,591,748 7,721,510 7,721,510
Increase due to assumed issuance of shares
related to outstanding stock options
using the treasury stock method......... 406,966 406,966 347,318 400,961
---------- ---------- ---------- ----------
Adjusted weighted average outstanding
common shares and common share
equivalents............................. 9,998,714 9,998,714 8,068,828 8,122,471
========== ========== ========== ==========
Net income per common share and common
share equivalent........................ $ 0.07 $ 0.07 $ 0.03 $ 0.03
========== ========== ========== ==========
</TABLE>
Note: Net income per common share and common share equivalent has been computed
based upon the weighted average outstanding common shares and common
share equivalents during each period. Common share equivalents
recognize the dilutive effects of outstanding options to acquire Common
Stock.
Page 17
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1996
<PERIOD-END> SEP-30-1996
<EXCHANGE-RATE> 1
<CASH> 6,797,731
<SECURITIES> 27,858,799
<RECEIVABLES> 22,522,129
<ALLOWANCES> 427,276
<INVENTORY> 2,972,179
<CURRENT-ASSETS> 61,082,189
<PP&E> 4,910,000
<DEPRECIATION> 1,413,362
<TOTAL-ASSETS> 71,191,571
<CURRENT-LIABILITIES> 10,225,137
<BONDS> 0
0
0
<COMMON> 96,387
<OTHER-SE> 60,870,047
<TOTAL-LIABILITY-AND-EQUITY> 71,191,571
<SALES> 0
<TOTAL-REVENUES> 9,659,274
<CGS> 0
<TOTAL-COSTS> 9,505,248
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 57,235
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 646,235
<INCOME-TAX> 0
<INCOME-CONTINUING> 646,235
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 646,235
<EPS-PRIMARY> 0.07
<EPS-DILUTED> 0.07
</TABLE>
